Analysis

Listed law firms prove resilient to market turbulence

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Is the legal profession the new gold?

Listed law firms have proven collectively immune to the sell-off that took place in stock markets this month amid fears of a wave of post-pandemic inflation.

Indeed, the Legal Cheek listed law firm fund — a basket of the six main listed law firms in the UK — is actually up fractionally by 1% this month, suggesting that some investors are using the legal profession as a hedge against volatility.

With the UK interest rate at a record low of 0.1%, and inflation surging last month to 1.5%, eroding the value of money sitting in bank accounts, savers are looking for ways to protect their wealth.

Some are turning to gold, which has risen by around 4% this month, while others are focusing on consumer brands with pricing power like Unilever, whose share price is up a similar amount over recent weeks. The drift upwards in listed law firms’ values seems to place them in the same risk-off category.

Looking more closely the picture within the Legal Cheek listed law firm fund is actually quite mixed. On one hand you have DWF, whose share price has jumped by a whopping 28% this month on the back of stronger than expected financial results, while on the other there’s Rosenblatt Group, down 12%, albeit after a very strong recent run up to this point.

With the exception of Gateley, which has risen by 11% this month, the other firms in the fund — Knights, Ince and Keystone — have held pretty steady within single percentage point fluctuation ranges during this choppy period for markets.

The 2021 Legal Cheek Firms Most List

Listed law firms are a pretty new thing, with Gateley the first one to go public six years ago after the Legal Services Act got rid of the old rule stating that only lawyers could own law firms, so it’s still a bit early to say what their precise role in the investing ecosystem is. But the steady, countercyclical nature of law would make firms which practise it a natural safe haven.

Certainly that has proved the case so far for the Legal Cheek listed law firm fund, which has ticked up nicely from an original investment of £600 in early January this year to just under £800 today. But past volatility of law firm shares, particularly in the wake of the Covid-19 outbreak last spring when several cratered dramatically, suggests the sector has some way to go before it can be relied upon to generate steady returns.

Still, the signs this year will be encouraging for the likes of Irwin Mitchell and Mishcon de Reya, as they explore the possibility of going public.

The Legal Cheek listed law firm fund

DWF Group: £116.63 fund value (107p per share)
Knights Group Holdings: £96.14 fund value (418p per share)
The Ince Group: £149 fund value (78p per share)
Keystone Law Group: £108.80 (640p per share)
Gateley Holdings: £125.37 (199p per share)
Rosenblatt Group Holdings: £193.20 (120p per share)
Total fund value: £789.14 (up from an original total of £600 invested in January this year)

Read previous instalments in our share column here. I’ll be back next month with an update on how the legal fund is getting on.

This series is in no way intended to amount to financial and/or investment advice. And remember, shares can go up as well down and professional advice should always be sought before investing.

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